Escalating Israel-Hamas conflict could push oil prices to $157/bbl – World Bank
Rising conflict in the Middle East coupled with disruptions caused by the Russian invasion of Ukraine could put “global commodity markets into uncharted waters,” World Bank’s latest Commodity Markets Outlook stated.
PHOTO: Flags of Israel and Palestine depicting conflict. Getty Images
The bank estimated that global crude oil prices have risen about 6% since the dawn of the Middle East conflict after Palestine-based Hamas militants launched a surprise attack on Israel. The outlook for oil prices could “darken quickly” if the conflict escalates further over the coming days, the bank said in its latest report.
The report categorised three potential outcomes of this conflict under different risk scenarios – small, medium, and large disruptions – drawing references from previous conflicts in the region.
Even though there hasn’t been any physical disruption in oil supply caused by this conflict, the bank says global oil supply could be reduced by 500,000 b/d to 2 million b/d in a “small disruption” scenario. These estimates are based on the reduction seen during the Libyan civil war in 2011, the World Bank added. It expects oil prices to increase between 3% to 13% in a small disruption scenario, a range between $93/bbl to $102/bbl.
In a “medium disruption” scenario, “roughly equivalent to the Iraq war in 2003,” the World Bank expects global crude oil supply to drop by 3 million b/d to 5 million b/d. This would result in oil prices increasing by 21% to 35%, reaching a range of $109/bbl to $121/bbl.
Lastly, in a “large disruption” scenario, akin to the Arab oil embargo in 1973, global oil supply could be reduced by 6 million b/d to 8 million b/d, the report suggested. “That would drive prices up by 56% to 75% initially—to between $140 and $157 a barrel,” it added.
“The latest conflict in the Middle East comes on the heels of the biggest shock to commodity markets since the 1970s—Russia’s war with Ukraine,” said Indermit Gill, the World Bank’s chief economist and senior vice president for development economics. “If the conflict were to escalate, the global economy would face a dual energy shock for the first time in decades—not just from the war in Ukraine but also from the Middle East,” he further added.
According to the World Bank, the current Israel-Hamas conflict has had a modest impact on oil prices, indicating that the global economy has improved its ability to absorb oil price shocks. These improvements also imply that any further escalation of the conflict “might have more moderate effects than would have been the case in the past,” it further added in its report.
In such a scenario, the World Bank projected oil prices to average $90/bbl in the fourth quarter of 2023, before decreasing to an average of $81/bbl in 2024 due to a slowdown in global economic growth.
By Aparupa Mazumder
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